It appears that when it comes to tax revenue, it is better to be feared than loved.
Improved faith in government was meant to improve the public’s willingness to pay the correct amount of taxes. That doesn’t seem to have happened.
The analysis of an economist on the tax collection effort of the Aquino administration over its first 10 months in office seems to have yielded a key finding: that relying on anti-corruption efforts to raise tax revenue was naive and illusory. Indeed the analysis showed that while tax revenues grew in response to an expanding economy, it fell as a proportion of it. In fact, despite the highly publicized legal cases of alleged tax cheats hitting the headlines during the period, the tax to GDP ratio actually declined in the second half of the year (the period under the present administration).
So it seems despite the astronomically high public approval rating enjoyed by the Benevolent One during most of this period, the public was not willing to pay his government its due. In fact, they were even more willing to pay a greater percentage of their income to the most distrusted administration since records of public trust were kept. As this reality began to dawn on the hapless economic managers of the current president, they announced that new taxes may be on the horizon.
True: the most benevolent one may have uttered the words, “no new taxes” during a campaign speech, but that was based apparently on the myth that an honest government would inspire reciprocal honesty from its citizenry in paying their taxes correctly. Having not lived up to their end of the bargain, the eunuchs in the Palace have found reason to renege on that campaign pledge made to the public. But not yet, at least not in this year. Perhaps in the next, 2012, a year before people go to the polls.
Such a timetable would appear to be political suicide for any congressman or senator up for re-election, but not for the politically tone deaf players in the Palace. It would seem strange for them to enunciate such a plan a year in advance. Is this their way of signalling to the public and the tax agents that this is their last chance to hold up their end of the deal? Well so it would seem. But what if the public calls their bluff?
This government doesn’t seem to be good at playing ‘the game’. It blinked in the run up to the LEDAC with the withdrawal of the RH Bill when the prelate began making noise. It could blink in the lead-up to the 2013 election campaign. It is a well-known fact that an election year is the worst time to conduct tax policy. The likelihood that perverse outcomes result is very high. It was back in 1997 when the government had finally posted a net surplus for the third year in a row that a major tax overhaul was churned through Congress. The result was a gradual erosion of revenues that have led to the current predicament: all because 1997 was a pre-election year.
What is worse is that the eunuchs announced that they intend to target the tobacco and liquor industries. Such hubris! The pockets of these merchants are deep. So deep they have resisted attempts, most recently in 2005 when economic and fiscal conditions were most bleak, to have taxes raised on them. The palace seems unwilling to go for the big ticket items like raising the VAT rate or taking out many of the exemptions introduced back in 1997.
Such a move would be truly unpopular given the rising food and energy prices of late, but it may be inevitable if the administration ever intends to make good on its other campaign pledges (it would cost roughly Php350 billion a year to close the budget gap and another Php150 billion to meet its Millennium Development Goal targets). Doing so would raise the tax to GDP ratio to around 18.5%, back to the same level it had reached in the mid-90s.
Perhaps for these economic managers, the most sensible thing they could do would be to delay new tax measures until after the mid-term elections of 2013. Having gained a fresh mandate, congress could then approach the tax system with greater freedom and flexibility. The important thing would be to prepare the tax proposals in the interim and connect them to the president’s social reform agenda.
That way, they could go to the election with the question, what kind of Philippines do we want? One that is fairer and more equitable, or one that is not. If we desire the former, then here is the price tag. Having exhausted all attempts to raise revenues, they could be warranted in posing that choice. In the final analysis, we should not just demand for the kind of government we want, we have to be willing to pay for it as well.
Update: the original piece incorrectly made mention of the mid-term elections being held in 2012 instead of 2013 which is what the current version contains.